E-Z-GO 2005 Annual Report Download - page 43

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23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Finance Portfolio Quality
The following table presents information about the credit quality of the Finance segment’s portfolio:
(In millions, except for ratios)
2005 2004 2003
Provision for loan losses $ 29 $ 58 $ 81
Nonperforming assets $ 111 $ 140 $ 162
Ratio of nonperforming assets to total finance assets 1.53% 2.18% 2.80%
Allowance for losses on finance receivables recorded on balance sheet $ 96 $ 99 $ 119
Ratio of allowance for losses on receivables to nonaccrual finance receivables 108.6% 83.7% 78.4%
Net charge-offs $ 32 $ 79 $ 117
60+ days contractual delinquency as a percentage of finance receivables 0.79% 1.47% 2.39%
The Finance segment has experienced significant improvements in portfolio quality over the past two years. The improvements in credit quality
were evident through lower nonperforming asset levels and 60+ days contractual delinquency.
Textron Finance’s nonperforming assets include nonaccrual accounts that are not guaranteed by Textron Manufacturing, for which interest has
been suspended, and repossessed assets. Nonperforming assets for each of the last three year-ends by business are as follows:
(In millions)
2005 2004 2003
Resort finance $ 31 $ 53 $ 55
Aircraft finance 14 12 26
Golf finance 13 26 22
Asset-based lending 6 7 6
Distribution finance 2 5 11
Other 45 37 42
Total nonperforming assets $ 111 $ 140 $ 162
We believe that nonperforming assets will generally be in the range of 1% to 4% of finance assets depending on economic conditions. Textron
Finance experienced significant improvement in total nonperforming assets with a $29 million decrease in 2005 and a $22 million decrease in
2004. The decrease in 2005 was primarily attributable to core businesses, including $22 million in resort finance and $13 million in golf finance,
largely related to improved general economic conditions. These decreases were partially offset by an increase in liquidating portfolios. These
non-core businesses continue to compose a disproportionate amount of Textron Finance’s nonperforming assets accounting for 41% of total
nonperforming assets while comprising less than 5% of the total finance assets at December 31, 2005.
Finance Outlook
In 2006, we expect the Finance segment’s profit to increase primarily as a result of improved net interest margin related to higher average finance
receivables.